FAQ – Why doesn’t my mate pay any tax?

No one likes paying tax. I often tell clients that paying tax isn’t such a bad thing – it means you are making money (better than the alternative – right?). But no one finds comfort in this and I am then struck with the statement – ‘But my mate makes good money and he doesn’t pay any tax’. So how can this be true?

A number of reasons why an individual may not pay any (or minimal) tax:

1. They operate their business through a company structure, therefore, it is the company that pays the tax and the net profit (after tax) is available to the owners. Ultimately, they are not avoiding tax, just shifting the liability from the individual tax payer to the company.

2. They salary sacrifice part of their wage into their superannuation fund. This reduces the tax liability to the individual tax payer and instead tax is paid on the contributions within the superannuation fund. This can be an effective strategy for reducing tax overall.

3. They operate their business through a Discretionary Trust and have the ability to distribute profit amongst family members to reduce tax overall across their family group.

4. They have negatively geared property which reduces their taxable income to a minimal level. Sounds great in theory, but remember they are still out of pocket for the expenditure so you need to do the sums as to whether this strategy works for you.